Arp v. Riley

• Decision Date: 28 December 2015
• Docket Number: No. 72613–7–I.,72613–7–I.
• Citation: 366 P.3d 946,192 Wash.App. 85
• Court: Washington Court of Appeals
• Parties: Benjamin C. ARP, Appellant, v. James H. RILEY and "Jane Doe" Riley, husband and wife and the marital community composed thereof; and Sierra Construction Co. Inc., a Washington State Corporation, Respondents.

192 Wash.App. 85

366 P.3d 946

Benjamin C. ARP, Appellant,

v.James H. RILEY and "Jane Doe" Riley, husband and wife and the marital community composed thereof; and Sierra Construction Co. Inc., a Washington State Corporation, Respondents.

No. 72613–7–I.

Court of Appeals of Washington, Division 1.

Dec. 28, 2015.

Jeffrey Bruce Wells, Wells and Jarvis, P.S., Seattle, WA, Kenneth Wendell Masters, Shelby R. Frost Lemmel, Masters Law Group PLLC, Bainbridge Island, WA, Ruth a Stacey Moen, Leonard W. Moen & Associates, Renton, WA, for Appellant.

Brett Michael Wieburg, Law Offices of Sweeney Heit & Dietzler, William Jennings O'Brien III, Gregory G. Wallace, Law Office of William J. O'Brien, Philip Albert Talmadge, Talmadge/Fitzpatrick/Tribe, Seattle, WA, Paul Lawrence Crowley, Lockner & Crowley, Inc., P.S., Tacoma, WA, Clayton G. Kuhn, Sandberg Phoenix, St. Louis, MO, for Respondents.

LEACH, J.

¶ 1 Benjamin C. Arp appeals the trial court's summary dismissal of his personal injury action against James H. Riley and Sierra Construction Company Inc. (collectively Sierra). The trial court decided that the judicial estoppel doctrine barred this lawsuit because Arp failed to amend the schedules in his Chapter 13 bankruptcy case to inform the court about a personal injury claim he acquired after that court confirmed Arp's payment plan. Because judicial estoppel is an equitable doctrine to be applied by the trial court through its exercise of discretion on a case-by-case basis after evaluating the pertinent factors and because the trial court did not do this, we reverse and remand for proceedings consistent with this opinion.

FACTS

¶ 2 Arp filed a Chapter 13 bankruptcy petition on July 22, 2008. The bankruptcy court confirmed Arp's Chapter 13 plan on December 17, 2009. The confirmation order required him to inform the Trustee of any change in circumstances and allowed Arp to retain his property:

1. That subject to the terms of this order, the plan proposed by the debtor dated 12–09–09 is hereby confirmed;

....

4. That the debtor shall inform the Trustee of any change in circumstances, or receipt of additional income, and shall further comply with any requests of the Trustee with respect to additional financial information the Trustee may require;

....

6. That during the pendency of the plan hereby confirmed, all property of the estate, as defined by 11 U.S.C. section 1306(a) shall remain vested in the debtor, under the exclusive jurisdiction of the Court, and further, that the debtor shall not, without specific approval of the Court, lease, sell, transfer, encumber or otherwise dispose of such property.

¶ 3 On October 5, 2010, Arp suffered serious injuries when a sports utility vehicle (SUV) rear-ended his stopped car. James Riley drove the SUV while working for Sierra Construction Company. Arp sustained physical injuries as well as mental and emotional problems, including difficulty with memory. He cannot engage in the physical activities he previously enjoyed. A neuropsychologist described his symptoms as consistent with cognitive disorder NOS (not otherwise specified) and adjustment disorder NOS, as well as depression and anxiety.

¶ 4 After the accident, Arp missed several payments on his Chapter 13 plan, totaling $2,875.00. The bankruptcy trustee moved to dismiss Arp's bankruptcy case in November 2011. Arp responded, stating that he forgot to make payments because he experienced memory loss as a result of a car accident for which he was not at fault. Arp also noted that he had paid $154,336.42 to his creditors under his Chapter 13 plan. The trustee struck the motion to dismiss, and in March 2012, the bankruptcy court granted Arp a discharge. Arp paid off his remaining debts under the Chapter 13 plan, and the bankruptcy court closed his case in April 2012.

¶ 5 Arp filed suit against Riley and later amended his complaint to include Sierra Construction Company. In Sierra's amended answer, it asserted the affirmative defenses of judicial estoppel and lack of standing. The trial court dismissed Arp's case on summary judgment, concluding that because Arp's personal injury claim against Sierra "is properly considered an asset of the bankruptcy estate, as defined in 11 U.S.C. § 1306(a)(1)," Arp "had a duty to disclose the post-petition asset in his bankruptcy action." It also decided that Arp's response to the trustee's motion to dismiss did not satisfy the disclosure obligation created by the confirmation order. The trial court denied Arp's motion for reconsideration. Arp appeals.

STANDARD OF REVIEW

¶ 6 This court reviews a trial court's grant of summary judgment de novo, affirming only if no genuine issues of material fact exist, viewing the evidence in the light most favorable to the nonmoving party.¹ But "[w]e review a trial court's decision to apply the equitable doctrine of judicial estoppel for abuse of discretion."² "A trial court abuses its discretion when it bases its decision on untenable or unreasonable grounds."³

ANALYSIS

¶ 7 Arp challenges the trial court's decision that judicial estoppel bars this lawsuit because he did not properly disclose his claim in his Chapter 13 bankruptcy proceeding. He also challenges its decision that his claim remained an asset of the bankruptcy estate and could be pursued only by the trustee. Arp contends that he had no duty to disclose the claim and that he owned it because of the provisions of the confirmation order. Alternatively, he claims that he made an adequate disclosure.

¶ 8 Sierra responds that both the bankruptcy code and the confirmation order imposed a disclosure obligation. Because Arp did not disclose his claim, judicial estoppel bars it. Sierra also asserts that Arp's claim remains part of the bankruptcy estate and can only be pursued by the bankruptcy trustee.

¶ 9 Judicial estoppel " ‘precludes a party from asserting one position in a court proceeding and later seeking an advantage by taking a clearly inconsistent position.’ "⁴ It is intended to protect the integrity of the courts but is not designed to protect litigants.⁵

¶ 10 A court looks to three factors to determine if judicial estoppel applies: (1) if the party asserts a position inconsistent with an earlier one, (2) if acceptance of the position would create the perception that a party misled a court in either proceeding, and (3) if the party asserting the inconsistent position would derive an unfair advantage or impose an unfair detriment.⁶ But this is not an exhaustive formula nor are there inflexible prerequisites, thus "[a]dditional considerations may inform the doctrine's application in specific factual contexts."⁷ Indeed, courts must apply judicial estoppel at their own discretion; they are not bound to apply it but rather must determine on a case-by-case basis if applying the doctrine is appropriate.⁸

¶ 11 We first decide if Arp's nondisclosure of his claim as an asset in his bankruptcy proceeding constituted a clearly inconsistent position. Nondisclosure of a claim later brought in state court can support the application of judicial estoppel because a party asserts two opposing positions.⁹ As a general rule, if a debtor in a bankruptcy proceeding fails to report a cause of action and obtains a discharge or confirmation, a trial court may apply judicial estoppel to bar the action.¹⁰ This prevents a debtor from protecting the asset from creditors by representing to the bankruptcy court that no claim exists and then asserting in another court that the claim does exist.¹¹ But "[a] party's nondisclosure of a claim in bankruptcy does not automatically lead to estoppel in a future suit," especially where a party lacks knowledge or has no motive to conceal the claims.¹²

¶ 12 Arp claims that he did not take any inconsistent position because the bankruptcy code and the confirmation order made him the claim's owner with no duty of disclosure. Sierra disagrees on both points. Deciding if property belongs to the bankruptcy estate or to the debtor involves interpreting bankruptcy code provisions.¹³ The parties' conflicting positions about the ownership of a claim first acquired after a court confirms a Chapter 13 plan reflect a division among courts about how to classify this category of property.¹⁴ When a court enters a confirmation order in a Chapter 13 bankruptcy proceeding, it orders the debtor to apply part of his future income to discharge debts.¹⁵ While a debtor in a Chapter 13 bankruptcy has an ongoing duty to disclose postpetition causes of action that could become property of the bankruptcy estate,¹⁶ claims first acquired after confirmation of a Chapter 13 plan do not always become estate assets. When a court decides that property acquired after confirmation belongs to the debtor, courts have held that the debtor need not disclose that property and therefore have declined to apply judicial estoppel to bar undisclosed claims.¹⁷

¶ 13 The bankruptcy code does not clearly state what postconfirmation property belongs to the bankruptcy estate. 11 U.S.C. § 1306(a) provides that the bankruptcy estate includes the property specified in 11 U.S.C. § 541 and "all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first," and certain earnings from the debtor's services. But 11 U.S.C. § 1327(b) states, "Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." And unless the plan states otherwise, the debtor holds this property "free and clear of any claim or interest of any creditor provided for by the plan."¹⁸ The Ninth Circuit has noted the tension between these statutes: "Under § 1327(b), property of the estate revests in the debtor upon confirmation of a Chapter 13 plan, but § 1306(a)(1) does not include confirmation of the plan as one of the events defining the...